Company Notes Digest 3.31.17

Each week we read dozens of transcripts from earnings calls and presentations as part of our investment process. Below is a weekly post which contains some of the most important quotes about the economy and industry trends from those transcripts. Click here to receive these posts weekly via email.

It was another very light week for corporate comments. The consumer is probably holding steady, but there were a couple of data-points to suggest that Q1 growth might have been a little bit soft. Earnings season will pick up in a few weeks and then the pace should increase by quite a bit. I’ll be careful what I wish for.

The Macro Outlook:

The consumer is pretty steady

“When I think about the consumer, I think the consumer has been pretty steady. We know the consumer is looking for everyday value. The consumer is not reacting to promotional value constructs, the way they did a few years ago and I think that when you give the consumer what it is that they want, they’re visiting restaurants.” —Darden CEO Gene Lee (Restaurants)

Some first quarter numbers may be soft, but mostly for transitory reasons

“U.S. consumer purchases for center-of-store food were soft in the first quarter, especially in February. This is based on retail consumption reports for the period which showed a measurable year-on-year deceleration across many categories…We believe that this short-term slowdown can be attributed to a confluence of factors, including unseasonable weather, a late Easter and the timing of income tax refund payments, which are likely temporary. In fact, a few weeks into our second quarter we have seen an uptick in our sales of U.S. consumer products…we don’t see anything in our data going into March to suggest the slowness that we saw in January and February as continuing.” —McCormick & Co CEO Lawrence Kurzius (Spices)

“The slowing sales trend early Q1 has most acutely impacted eCommerce. We have clearly identified the issues, an assortment lacking depth and color for spring compounded with visual merchandising that did not powerfully translate our design vision.” —Lululemon CEO Laurent Potdevin (Apparel)

Wage inflation could moderate a bit, but is still a pressure point

“we expect wage rates to moderate a little bit, we were near 5% this year for the full year, California, New York, are the two states that we expect to have less pressure in, because we’re not seeing the same kind of minimum wage increase. New York had a 50% increase last year and California right about half as much as last year. So we’re getting a little bit of moderation on the wage rate in our view. But we still think it’s going to be a pressure point above what we’ve seen in the history of this company” —Dave and Buster’s CFO Brian Jenkins (Restaurant)

Electronic component costs are rising

“there is a rising component cost environment right now. On the Client side we see it in memory, we see it in glass and LCD panels. On the server side and storage side, we are seeing it in SSD drives and memory.” —Dell Technologies CFO Tom Sweet (Enterprise Tech)

International:

Cuba is opening up slowly but surely

“at this point in time obviously there are number of ships going for the first time…So we are sending larger ships, Paradise probably the largest ship from the U.S. to Cuba going. And so you know, it will happen over time, they’ve got pace and take their time but again there is a lot of change already occurring there…things are increasing and we’ll just have to continue to work with them and go at the pace they want to go.” —Carnival Cruise CEO Arnold Donald (Cruises)

Financials:

The trend towards indexation is more pronounced in the Americas

“I would say that what we are observing is that trend is more pronounced in the Americas than we are seeing in the EMEA and Asia-Pac region” —Factset CEO Phil Snow (Fintech)

Miscellaneous Nuggets of Wisdom:

Strive for simplicity

“if you try to take a complexity and you then try to solve it with a complex system, you have created a double complexity and that usually doesn’t work very well. All the companies I have ever been involved with and studied, most of the time when they are launching a big system or they are opening a new facility, if something drastically goes wrong and that’s because they haven’t first simplified it.” —Restoration Hardware CEO Gary Friedman (Retail)